CCS could avoid a quarter of Germany's CO2 emissions

Basic chemicals, iron and steel production and the cement industry have the greatest potential to avoid greenhouse gas emissions. This is according to the latest energy transition index from management consultants McKinsey.

It advises carbon capture and storage (CCS) in order to achieve climate protection targets. “Despite the increasing use of renewable energies, not all sectors can be decarbonized using green electricity,” says the index. The necessary infrastructure should therefore be built now.

The ten largest stationary CO2 emitters alone could avoid 50 million tons of CO2 per year through CCS. According to the consultants, a quarter of German emissions - 150 million tons of CO2 - could be captured and injected underground each year from the entire industrial sector.

“At present, the costs of CCS are still so high that the technology does not pay off for many market participants. This could change with rising certificate prices - then CCS could be one of several possible options alongside hydrogen,” said Thomas Vahlenkamp, Senior Partner at McKinsey's Düsseldorf office.

However, this would require a clear commitment from companies and a timetable, as building an infrastructure takes time and only pays off above a certain size. In spring 2024, the Federal Ministry of Economics presented the key points of the carbon management strategy. For the first time, it also envisages large-scale underground CO2 storage in the German North Sea. The federal states can also decide on onshore storage in their respective regions.

Only little CCS in planning so far

According to McKinsey, the first large-scale projects with a capture capacity of around 9 million tons per year are being planned in Germany, primarily for the cement industry. The plants should be in operation by the end of the decade at the latest.

From the consultants' point of view, basic chemicals would be another sensible application. Here, around 25 million tons of CO2 emissions are produced annually in a very pure form as a by-product of chemical processes. For example, in ammonia and ethanol production. With capture costs of 40 to 60 euros/tonne, it is already possible to achieve cost-effectiveness compared to CO2 certificates in the European Emissions Trading System (ETS).

Vahlenkamp explained: “With rising ETS prices, capture technology could become increasingly attractive. However, this is likely to change if green hydrogen becomes widely available at an economical cost: Companies from the iron and steel industry or gas-fired power plants would then be more likely to rely on this technology to avoid CO2 emissions.”

High industrial electricity price expected in 2024

The index also calculates an increased German industrial electricity price in relation to the European price trend. In the current survey, it is 12.6 percent higher than the European average; in the previous six months, the difference was only 3.3 percent. The reason for this is that prices abroad have fallen by 6 percent, while they have risen by 2 percent in Germany. According to the consultants, the German industrial electricity price is expected to rise disproportionately in 2024, as last year's federal subsidy of 12.8 billion euros for transmission grid fees will now no longer apply.

The German household electricity price has increased much more drastically than the industrial electricity price. While it was still 27.2 percent higher than the European average at the end of 2023, it was already 41.9 percent higher in June 2024. In terms of total energy costs for households, two opposing trends would have slightly improved the indicator: energy costs fell by 0.2% in the last 12 months, mainly due to the fall in gas prices, while inflation was 2.6% according to the consumer price index. This means that the share of energy costs in the overall basket of goods has fallen from 9.6% to 9.5%.